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Businesses slow to invest in sustainable energy

USC Marshall MBA students accompanied traveled to Japan to report on sustainability challenges.

A research team of USC Marshall MBA students has concluded that a sustainable world is not within immediate reach as issues surrounding unclear global policies, affordability and myopia among political leaders and consumers are thwarting businesses from investing in sustainable energy.

The USC Marshall School of Business team traveled to Yokohama, Japan, in mid-November to present its findings to an advisory council of the Asia Pacific Economic Cooperation (APEC).

APEC is an organization focused on promoting free trade and furthering economic growth among its 21 member nations spanning four continents. APEC is the world’s largest regional cooperative in a region that accounts for approximately 40 percent of the world’s population and nearly half of the world’s gross domestic product.

The team represents the only business school invited to share its findings with the APEC Business Advisory Council, a collection of 63 economic and political leaders from each APEC nation, who meet to advise the organization on strategy.

In the team’s executive summary to the organization, the MBA students defined the issues that are creating a lack of confidence for investments in sustainable energy.

“Policies push sustainable energy into the energy mix, rather than stimulating demand to pull sustainable energy into the market,” the team wrote. “Businesses lack clear price signals to inform investment decisions. Regulatory uncertainty discourages investments with long return horizons.”

Cathy Kim, who led the MBA research group, said: “Our research team traveled to 14 APEC economies and conducted 183 interviews with business leaders. Our goal was to capture the voice of investors in sustainable energy.”

According to Kim, businesses see a range of barriers for the investment landscape in sustainable energy. The barriers include high capital costs for start-up, a relatively small market, low prices for products and uncertain international policies to support a strong move away from traditional fossil fuels.

“One of the multinational United States companies that we interviewed captured the concerns of many businesses,” Kim said. “The company said, ‘We are stuck in policies that have always supported [fossil fuel] energy.”

The USC Marshall research team found that fossil fuel energy receives 12 times more subsidies than sustainable energy, by factoring in the actual production cost of fossil fuels and their carbon emissions. The team also concluded that the lack of storage solutions is an impediment to the development of renewable energy. Energy produced from solar or wind must be stored to meet the variable needs of consumers, and the infrastructure is not currently in place in the vast majority of APEC countries.

The team provided a series of recommendations to create new investment opportunities for sustainable energy. Among the recommendations:

For Carl Voigt, professor of clinical management and organization at USC Marshall, who serves as faculty adviser for the research team, the recommendations provide vital information to develop new strategies for encouraging the development of renewable energy.

“We encourage our students to cross boundaries to do research that will have an impact on global economic issues,” Voigt said. “Our students are making a real difference at the policy level to make the world a better place.”